Industry weighs Apple-RealNetworks feud

Harmony provokes discord and debate in digital music industry

By Marc Ferranti, IDG News Service | 02 August 04

The increasingly rancorous feud between Apple and RealNetworks over technology that lets tunes from the RealPlayer Music Store play on the market-leading iPod is fueling controversy about Apple's business model, copyright law, and the impact of incompatible technologies on the music business.

RealNetworks triggered the wave of debate last week, when it announced its Harmony software, which lets users download songs from the RealPlayer Music Store into more than 70 music player devices, including Apple's iPod.

This loosens Apple's proprietary grip on the iPod, which lets users play songs downloaded from the popular iTunes Music Store, MP3 files and music transferred from CDs, but not songs in formats from vendors whose technology competes with Apple's FairPlay digital rights management (DRM) system. These include Microsoft Windows Media Audio, which is supported by a number of partners, and RealNetworks' Helix.

Harmony enables users to play tunes originally formatted with Helix on devices designed to play only WMA or FairPlay songs.
After holding its fire for a few days, Apple released a statement on Thursday accusing RealNetworks of adopting "the tactics and ethics of a hacker to break into the iPod".

Apple threatened, "We are investigating the implications of their actions under the [Digital Millennium Copyright Act] and other laws. We strongly caution Real and their customers that when we update our iPod software from time to time it is highly likely that Real's Harmony technology will cease to work with current and future iPods."

RealNetworks parried with a statement asserting that it broke no laws. "Harmony follows in a well-established tradition of fully legal, independently developed paths to achieve compatibility," RealNetworks says.

Though Microsoft represents a far bigger threat to Apple's digital media business than does RealNetworks, the spat over Harmony touches a raw nerve in the industry. Incompatibilities among file formats and DRM systems is causing confusion among consumers and dampening online music sales, according to a variety of industry executives at the Jupiter Plug.IN conference in New York earlier this week.

Though sales of digitally distributed music will more than double compared to last year, reaching more than $270 million in 2004, online music sales as a percentage of overall music sales remain flat, at about 12 percent, according to David Card, a Jupiter Research analyst.

While digital music is helping the USA music industry grow after four years of steeply declining sales, it still will not replace CDs or bring music sales back to their 1999 peak, according to a Jupiter forecast released at Plug.IN.

Several executives at the Jupiter event said that if consumers could buy songs from any site and play them on any player, it could spark more sales.

"Harmony is a step in the right direction," said Jeff Bronikowski, vice president of business development at Universal, during a Plug.IN industry panel.
Apple's threats to RealNetworks illustrate the lengths to which companies will go to protect proprietary systems, however.

"In a way, you can't blame Apple for trying to exert control and establish a standard, but the way they are taking the moral high ground and accusing RealNetworks of hacker tactics is a bit energetic," says Jonathan Zittrain, co-director of the Berkman Center for Internet & Society at Harvard Law School.

It is not clear, however, whether Apple has a case.
"The DMCA comes into play when actions are taken to circumvent a measure that prevents access to copyright material. The Lexmark cartridge case might be relevant here though, because in that case, reverse engineering for purposes of compatibility was found to be Okay."

In a case involving printer maker Lexmark and Static Control Components, the US Copyright Office last year ruled that the DMCA does not prohibit reverse engineering if the intent is to make the duplicated product work with a separate computer program.

Real says its developers did not engage in reverse engineering. "What we did was not reverse engineering. ... We looked at publicly available data moving between the user and the iPod," said Sean Ryan, RealNetworks' vice president of Music Services.

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